Implications of biased reporting: conservative and liberal accounting policies in oligopolies

We examine the effects of biased (conservative or liberal) reporting on product market competition. Cournot duopolists observe either firm-specific or industry-wide shocks and provide noisy reports subject to an exogenous mandated bias attributed to public policy. Given neutral prior beliefs, either a conservative bias or a liberal bias enhances overall reporting-system informativeness as measured by the reduction of uncertainty. Consistent with previously established effects in the information sharing literature regarding increases in informativeness, we show that expected industry profits and expected consumer surplus may gain or lose from bias, depending on whether the shocks are firm-specific or industry-wide and the degree of product competition. Expected social welfare, however, always increases in bias, irrespective of the source of uncertainty and product substitutability or complementarity. We next consider a setting where firms self-select whether to bias reports and characterize regions of potential conflict with a public policy that maximizes expected social welfare. Further results on the differential effects of conservative or liberal bias follow from relaxing the assumption of neutral prior beliefs.     

Branding and relationships: Customer and supplier perspectives

This paper explores and investigates the role of branding within financial services. Specifically, the study aims to assess the importance of branding and its associated elements including brand image and brand experience in the relationships that exist between consumers and their financial brands. It aims to achieve this through research, which identifies gaps between the managerial and consumer perspectives on branding in relationships in retail financial services. It is well established that the characteristics of services are different from those of manufactured goods and that service personnel play a central role in the services experience. Moreover, the concept of relationship marketing within services proclaims the importance of one-to-one relationships between businesses and customers as well as relationships between consumers and their brands. Drawing from the fields of brand management, relationship marketing and services marketing, this research aims to investigate the perceptional differences between consumers and suppliers in relation to the importance of branding in financial service relationships. The research findings indicate that brand experience appears to be far more salient than brand image in shaping and building meaningful and lasting brand perceptions and promoting customer retention.     

Moment explosions in stochastic volatility models

In this paper, we demonstrate that many stochastic volatility models have the undesirable property that moments of order higher than 1 can become infinite in finite time. As arbitrage-free price computation for a number of important fixed income products involves forming expectations of functions with super-linear growth, such lack of moment stability is of significant practical importance. For instance, we demonstrate that reasonably parametrized models can produce infinite prices for Eurodollar futures and for swaps with floating legs paying either Libor-in-arrears or a constant maturity swap rate. We systematically examine the moment explosion property across a spectrum of stochastic volatility models. We show that lognormal and displaced-diffusion type models are easily prone to moment explosions, whereas CEV-type models (including the so-called SABR model) are not. Related properties such as the failure of the martingale property are also considered.

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Equal sacrifice and fair burden-sharing in a public goods economy

Applying a willingness-to-pay approach known from contingent valuation in environmental economics, we develop an ordinally based measure for the size of individual sacrifice that is connected with an agent’s contribution to a public good. We construct a selection mechanism that picks the unique efficient solution among all allocations that have an equal sacrifice as defined in this way. We show that the solution thus obtained corresponds to Moulin’s egalitarian equivalent allocation, conforms to both the ability-to-pay and the benefit principles, and has much in common with the Lindahl equilibrium.      

Insurance Market Effects of Risk Management Metrics

We extend the classical analysis on optimal insurance design to the case when the insurer implements regulatory requirements (Value-at-Risk). Presumably, regulators impose some risk management requirement such as VaR to reduce the insurers’ insolvency risk, as well as to improve the insurance market stability. We show that VaR requirements may better protect the insured and improve economic efficiency, but have stringent negative effects on the insurance market. Our analysis reveals that the insured are better protected in the event of greater loss irrespective of the optimal design from either the insured or the insurer perspective. However, in the presence of the VaR requirement on the insurer, the insurer's insolvency risk might be increased and there are moral hazard issues in the insurance market because the optimal contract is discontinuous.     

Investigating the significance of insurance and income on health service utilization across generational cohorts

Ensuring access to health services is critical to consumers’ well-being across generational cohorts. Based on pre-disposing characteristics (that is, gender, ethnicity) and financial resources (that is, insurance and income) certain consumers may face barriers to access. In attempt to improve access to health care, this article presents an empirical investigation into how health service utilization can be affected by enabling variables, namely insurance and income. Utilizing proprietary secondary data from a major metropolitan hospital in the United States, the article investigates the following questions: How does insurance and income enable service utilization? How do pre-disposing characteristics of a consumer hinder service access? How does the effect of income and insurance moderate the effect of pre-disposing factors on service utilization? Finally, how do these effects on service utilization vary across generational cohorts? Results indicate that insurance and income may enable access to service, yet this effect is varied among different demographic cohorts and generational groups. The article concludes by offering implications for marketers and policymakers.     

Die Private Krankenversicherung im Fokus des Verfassungsrechts

Starting with the question as to the extent to which the state may interfere with economic interests at all, a brief historical overview is given through to the regulations currently in force. The Basic Law (Grundgesetz) remains neutral on this issue so that the question cannot be discussed as to whether regulations are at all conceivable and admissible but how far these can go. The noteworthy parameters of the German law on intensifying competition in the statutory health insurance system (GKV-WSG) are then highlighted: the collision of the reform of private health insurance law with the reform of the entire insurance contract law as well as the length of the individual provisions and the correlating remark of member of parliament Merz in the Cicero magazine according to which no single member of parliament had even a rudimentary understanding of he was actually deciding on. From the point of view of substantive law, the main “diseases” of the GKV-WSG are strikingly shown, including in particular the creation and design of the basic rate as well as non-terminability etc. Finally reference is made to the double balancing act with which the private health insurance system is confronted: on the one hand the statutory health insurance system with its allocation principle and the private health insurance system with it superior principle of equivalence that wakens the desires of 4/5 of the German population who live in a poorly functioning system; on the other hand the field of tension between individual and collective consumer protection, i.e. between the high standards which are to be created for individuals which are then ultimately to be borne by the collective.     

The Regime Switching Portfolios

In this paper we develop a portfolio selection theory under regime switching means and volatilities. We use log mean-variance as the portfolio selection criteria and, as a result, the theory is made substantially easier to implement than other existing theories. Moreover, the estimated regimes are easy to interpret as one of the regimes corresponds to the business cycle turning points. Finally, we conduct an asset allocation simulation and obtain reasonable results by introducing an idea of switching volatility targets.